Friday 20 January 2012 09.31 EST
First published on Friday 20 January 2012 09.31 EST

Crisis-stricken HMV has forged an alliance with Universial Music and other suppliers which the company believes will help it to return to financial health over the next three years.

The retailer plans to hand 2.5% of its equity to major suppliers in the form of warrants. Other terms of the alliance are to remain confidential but they are believed to formalise a switch of risks to suppliers at the store chain.

Shares in HMV, which lost 90% of their value last year, doubled by Friday lunchtime to 4.75p.

The deal is believed to include Universal Music, EMI, Warner Brothers, Sony Music, Universal Pictures and Disney. It is not thought to include games console suppliers, leading to immediate speculation that HMV may choose to refocus its product mix, expanding film and music and down-playing games. Shops are also expected to accelerate plans to resurrect vinyl offers.

HMV's commitment to generate a third of sales from technology lines such as headphones and iPads is likely to remain.

The deal with suppliers was accompanied by a relaxation of HMV's banking covenants. Loan terms were last relaxed only seven months ago, when HMV was forced to seek new emergency facilities from its lenders, led by state-backed Royal Bank of Scotland and Lloyds Banking Group.

Under the punishing terms of previous loan agreements, chief executive Simon Fox had admitted HMV was some way from being able to tell shareholders it had a "full, credible equity story".

Asked if he could now tell investors that the group did have a story to tell, he said: "I don't thing we can quite say that. [But] this clearly represents a material improvement in our financial position."

Fox believes net debt will reach something between £175m and £180m by the end of April, but — based on current trading patterns — can be halved within three years.

This target excludes any proceeds from the likely disposal of the group's Live business, which is expected to raise about £60m.

David Joseph, executive chairman of Universal Music UK said: "HMV is a vital part of the UK music industry and we are delighted that the support of the film studios and music companies is helping to secure its future. We look forward to working closely with HMV in the years ahead."